Warner music back in the running for EMI

Mar 15 2010 by Chris Knox, The Journal

EMI's recorded music division appears to be back in the sights of Warner Music today a report said the rival US firm had joined forces with private equity giant KKR to consider plans for a bid.

The two parties are said to have met in recent weeks to discuss how they would structure a deal for EMI, which is expected to be put up for sale this summer.

Warner has long coveted EMI’s recorded music division, while KKR is thought to be keen to acquire EMI’s music publishing arm, which owns the rights to songs such as Over the Rainbow and Santa Claus is Coming to Town.

The interest comes as EMI prepares a rescue plan that it hopes will convince investors to stump up another £120m and prevent it being taken over by its lender, Citigroup.

Bankers have reportedly valued the music publishing division at £1.2bn, but the uncertainty makes it much harder to place a price on the recorded music business, which generated 55% of EMI’s £293m earnings last year.

Any approach for EMI is unlikely until the company has resolved its stand-off with Citi, under which it has to find £120m to deal with a covenant breach on its £3.2bn of loans by mid-June.

To give it another 12 months of breathing space, EMI’s owner Terra Firma needs to win the backing of 150 out of 200 investors.

The speculation comes days after EMI Music announced the departure of chief executive Elio Leoni-Sceti, who has been replaced by former ITV boss Charles Allen.

EMI and Warner Music have long been seen as a merger partners, a move which would bring together EMI’s stable of artists including Coldplay and Robbie Williams with Red Hot Chili Peppers from the Warner camp.

The tie-up has previously been blocked by competition authorities, but Warner boss Edgar Bronfman Jnr is reportedly confident that it will go through next time.